UK economic growth gathers pace

London, October 26, 2013

Britain's economy picked up more speed between July and September, growing at its fastest pace in more than three years and building on an unexpected turnaround that has buoyed the government.

Gross domestic product rose by 0.8 per cent, faster than the 0.7 per cent achieved in the April-June period, Britain's Office for National Statistics (ONS) said yesterday.

The quarterly growth and the year-on-year rate of 1.5 per cent were in line with forecasts by economists in a Reuters poll. The numbers also made Britain, until recently a laggard among the world's rich countries, one of its fastest-growing economies with an annualised growth rate of over 3 per cent.

British government bond prices initially rose, reflecting expectations among some investors that quarterly growth might have been closer to 1 per cent, but quickly fell back.

Joe Grice, chief economist at the ONS, said quarterly growth could have reached 0.9 per cent but for weak gas and electricity output. That was possibly a reflection of Britain's unusually hot summer this year.

Samuel Tombs, an economist with Capital Economics, said Britain's economy was unlikely to gather much more pace because of wages that are rising less than inflation, more government spending cuts and the dormant euro zone.

"But with employment growing, confidence returning and productivity still well below its potential, it seems unlikely that the recovery will fade significantly either," he said.

Britain's economy has staged a surprising recovery since early 2013 when it avoided falling back into recession.

The turnaround has given a boost to Conservative finance minister George Osborne, who defied calls from the International Monetary Fund and the opposition Labour Party to bring forward spending in order to get the economy off the ropes.

The government hailed the growth figures as proof that its tough approach to public spending was paying off.

"Many risks remain, but thanks to our economic plan, the recovery now has real momentum," a Treasury spokesman said. The growth between July and September meant the British economy expanded for three successive quarters for the first time since 2011.

Nonetheless, unlike almost all other developed economies, which have fully recovered output lost during the financial crisis, Britain's economy remains 2.5 per cent smaller than its previous peak in early 2008.

Bank of England governor Mark Carney noted on Thursday that growth was coming from a low base, so yesterday's figures are unlikely to sway policy at the bank, which has suggested it will keep interest rates at their record low of 0.5 per cent for three more years.

Earnings are lagging inflation, raising questions about the sustainability of the recovery and giving ammunition to Labour to attack the government in the run-up to a general election due in 2015.

Yesterday's data showed Britain's giant services sector, which accounts for nearly 80 per cent of the economy, expanded by 0.7 per cent from the second quarter and was now above its peak before the financial crisis hammered Britain.-Reuters